Maybe twice a week I am asked by land investors and farmers, “Why are investors still buying land at these high prices?” My reply is, “Where do you put your capital or extra cash from your good crops and good prices?” In the What Bank?
Interest rates on almost all sizable funds that are put in CDs pay barely 1%. Why would one put money there when inflation is at least 3 or 4 percent per year? This is the published inflation rate according to the Government Bureau of (You name it). I call them Liars. Figures don’t lie but liars figure. If you believe that the inflation rate is currently that low, I have a bridge in Arizona to sell you.
There is great risk in Government Bonds and the Corporate Bond market is suspect except for a few of the very solid Fortune 500 Companies. The Equity markets of the world are manipulated by the very wealthy and are for the very nimble and wary that see growth areas and can take advantage of short term pops or for the very young and who can accept risk over the long term. The commodity markets are not for the weak of heart and even the very astute investors pull their hair out at times.
Most investors that buy farmland are looking for stability and long term rewards without much hassle from the government and pestering tenants and tax assessors. They are looking for simplicity and a long term tangible asset. Paper assets have a possibility of total evaporation. The only drawback of ranch land or farm land is that it is not easily converted to cash without some preparation.
The next question we hear is, “Will land prices continue to go up and what can we expect for a return?” The easy answer is “They aren’t making any more of it.” Land values will continue to rise as long as the government continues to print and spend us into oblivion. Only a few equities that are tied to commodities like the oil or mining business will continue to rise in a full blown inflationary economy as the government continues to expand the “fiat money” supply. The ever increasing debt of the consumer and the state and local governments that try to keep up with the inflationary spiral soon call a halt to the irrational spending and the whole house of cards falls. They can’t keep up with the rising cost of goods and services and expanding labor and unfunded pension hole.
Gold and silver and other commodities will continue to follow suit until the poorest among us are priced out of the markets and begin to starve and suffer from the lack of affordability for food, fiber, and energy. Supply and demand will set the limits and soon it will be cheaper to heat our house with our “fiat paper money” than coal, oil or gas. Land prices could set back on such a scenario, but those who own land will be able to go back to it and find that it will feed them and provide enough to pay the payments and taxes. Hopefully common sense will prevail and this debacle can be prevented.
Returns to land are generally commensurate with the value in the current market. Like water it seeks the highest level. I have found that over time, land will and should provide a general return of around 5% of the value every year. If the land that you own is not providing something near that number you need to find out why. In the current land and commodity market values the return on investment should seek the level of nearly 5% of the current competitive land value. A landlord should seek a return of 25% to 33% of the gross receipts of the production of the land. Now this can vary with the quality and climate in the area and other productivity enhancements such as irrigation. Water rights are another thing that we will pay more for in the future. Irrigation increases the certainty of return thereby reducing the risk.
Land in Central Illinois is very productive and produces a very high degree of certainty of high yields and returns. Irrigated land in Illinois provides some of the greatest productivity and returns in the country. Most of Illinois will produce excellent crops with average rainfall and brings some of the highest prices for farmland in the world. If you wish to invest in land in the Midwest check with Bertsch Realty & Trading Co. LLC. for some of the best investment grade land in the world.